Japanese Pension System – a review for the Zairyu Card

I just want to review this for those who pop in to Hoofin to You on a search about the Japanese pension system. I am still amazed at what people who go to Japan don’t know, and the fact that the Japanese government doesn’t seem to tell them they way they should.

What you see above is a “Nenkin Techo” book — a pension book. You are supposed to sign up for the Japanese pension system and get a book like this (I’m sure they haven’t changed it.)

The idea of the Japanese National Pension is pretty straightforward: you make 480 payments, currently about 15,000 yen a month, and are promised a benefit of about 780,000 yen a year at age 65. You need to make 300 payments to “vest”, which means be eligible to collect.

There are other ways to collect, however. The main one is through totalization. This means you came from a country that has a totalization agreement (known colloquially as a treaty) between your home country and Japan. With totalization countries, Japan agrees to give you credit for each year that you participated in the home country system, as long as the home country gave you that credit. (In the U.S., this is very easy. It just means earning about $4,500 in a year, and having the social security tax (or self-employment tax) taken out on that.)

Where your benefits are totalized, it doesn’t matter how long you pay to Japan, what matters is how long you paid to Japan and your home country.

I gave the example of myself: I had paid into U.S. social security for 23 or 24 years before I went to Japan in 2005. I paid into the National Pension there, and I was vested–I had a right to receive from Japan–sometime in the first year or two. I already had the right to receive from America when I had 10 years in (technically, “40 credits”), which I think I earned by the time I was 26. I started paying in at age 14.

The money basics are these:

Each monthly payment gets you credit, on retirement, for about 137 yen right now. So you pay 15,000 yen for 137 yen as a stream of income in retirement. If you want to do the math and prove it to yourself, multiply that 137 by 480 and you get 65,760 yen per month, which is 789,120 yen for a year.

Again, you don’t need to make 480 payments, the maximum. You don’t even need to make the full 25 years (300 payments). You can get credit for even one payment, if you are from a totalization partner. That’s because you can earn the other needed years in your home country.

So, why is this all still in the shadows? Well, mostly because the people with influence on this matter in Japan are still in the pre-totalization mindset. The people who run companies that employ foreigners would rather not even broach the subject, because it leads to the inevitable question “why aren’t I (or some other employee) in the Shakai Hoken?”, which is a 50%-50% arrangement where the employer is chipping in. There were a number of pension dodgers in Japan, who did it because it made no economic sense to pay in, because it was highly unlikely they’d ever make 25 years. Now, they can’t go back and re-do it.

The new residence card that will be issued next July is the first step in this issue coming out into prominence. It’s about to become very clear who is in the pension, and who isn’t. So it will be much harder for the long-timers to deflect the issue by putting it out in the expat community that the little blue book is something you just don’t need, and will be a money headache if you do get it. Sure, the dodging will still go on, because a number of companies that employ foreigners don’t want to deal with what amounts to an additional cost to them (and, in turn, to their Japanese clients.)

Right now, no one knows how many people are not enrolled that should be. Come July 2012, there is going to be a solid number, at least as far as new entrants to Japan go.

There is also other activity in the works to get Japan to own up to their side of the totalization agreement, similar to what is going on with the kidnapped children. Obviously, kidnapped children is a bigger issue than your being stuck eating catfood, if even by a modest degree. But where, years ago, getting around the pension seemed a victimless crime, now, it’s really a situation where the Japanese get to play both sides for keeps, and the foreigner is screwed. (The Japanese get the benefit when they go to totalization countries, but set up a Rube Goldberg scheme when foreigners come to Japan.) Countries like America are losing patience with the games that get played in Japan, and so this one will be on the radar for some time.

My advice is still to get your little blue book, even if you don’t pay the coupons, or can’t pay. You will want to have this going forward, because you will have to have it going forward.